CROWDFUNDING TO FOREIGN INVESTORS THROUGH REGULATION S

crowdfunding_investorMost portal operators think sooner or later about raising money from foreign investors. SEC Regulation S offers a convenient mechanism to do just that.

Regulation S allows a U.S. company to sell debt or equity securities to foreign investors under the following conditions:

  • The issuer must reasonably believe that the investors are offshore.
  • The issuer may not engage in any “direct selling efforts” in the U.S.
  • For debt securities, sales to U.S. persons are prohibited for 40 days. For equity securities, the period is increased to one year.
  • Various legends and Bylaw provisions are required to enforce the prohibition on U.S. sales.

(Careful readers will note that none of these requirements is geared toward protecting the foreign investors. Instead, all of the requirements are geared toward ensuring the the securities are sold only to foreigners. As a U.S. regulatory agency, the SEC simply has no jurisdictional mandate to protect foreign investors.)

Three features make Regulation S especially useful for Crowdfunding portals and issuers:

  • A Regulation S offering may be conducted using general solicitation and advertisement, i.e., through Crowdfunding.
  • A Regulation S offering to foreign investors may be conducted concurrently with a Regulation D offering to U.S. investors, even for the same securities.
  • Under Regulation S, the issuer can be indifferent as to whether foreign investors are accredited.

That’s not the end of it, of course. Other countries have their own securities laws and their own SEC’s, and a U.S. issuer must comply with those rules as well.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.

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3 thoughts on “CROWDFUNDING TO FOREIGN INVESTORS THROUGH REGULATION S

  1. Andrea Downs August 13, 2014 at 9:47 pm Reply

    Always Great intel Mark, thank you!

  2. Richard McCay October 28, 2014 at 12:37 am Reply

    If the servers running the crowdfund application are located in the USA does that constitute a “direct selling effort”?

    • crowdfundattny October 28, 2014 at 2:33 am Reply

      The servers do not have to be located outside the U.S.

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